Home Affordable Modification Program (HAMP) – Remember This Program?

One of the solutions that the Obama administration came up with to help solve the housing crisis was the Home Affordable Modification Program (HAMP). It was designed to save homeowners from foreclosure. The Obama administration is now trying to revitalize this program to help the crisis that just won't go away.

Let's take a short walk back in time and see where HAMP came from and the success (or failure) of the program. It was first introduced in March, 2009; it was touted as the program that would help as many as 5 million borrowers. It was going to keep them from going into foreclosure and help the economy at the same time.

Congress allocated $45.6 billion to help financially troubled homeowners. But guess what - HAMP hasn't come close to helping that many homeowners. In fact, it's far from it. Fewer than 895,000 people have refinanced through this program. And of that $45.6 billion that was allocated to "help," HAMP has only spent $2.5 billion. HAMP is scheduled to end operations in late 2012.

The Investigator General of the Troubled Asset Relief Program (SIGTARP) has long been critical of the program and what it could accomplish. In March, 2011, Neil Barofsky, a special Inspector General for SIGTARP, testified in front of a congressional committee that HAMP's "failed trial modifications often leave borrowers with more principal outstanding on their loans, less home equity, depleted savings and worse credit scores." He added that there was "near universal agreement that the program has failed to meet its goals" and that "there is little reason to hope things will get better."

Data that has been released by the office of Senator Jim DeMint (a South Carolina Republican), shows that through the first quarter of 2011, the private sector has been more successful in moving homeowners through the loan modification process than the government. Yes, I said it - the private sector did a better job than the government; imagine that. According to DeMint's office, the private sector has completed about 9.8 million mortgage modifications from 2007 through the first quarter of 2011, whereas HAMP has only recorded about 500,000 during the same period.

So, since this program has been so successful (ha-ha), the Obama administration is attempting to revitalize it, by making some changes and streamlining some processes so that HAMP can have a greater impact. Here are some of the proposed changes:

1. Borrowers will no longer be excluded from the program if the amount owed on the loan is more than 25 percent greater than the home's value.

The rule, as it was before, excluded most responsible borrowers from taking advantage of the low interest rates if they lived in neighborhoods where home values dropped dramatically. Some of these homeowners that were underwater on their loans chose to let their homes fall into foreclosure because they no longer saw the point. This has become known as strategic default.

2. Loosening guidelines for government-backed loans.

This makes the loans available to more people and lessens the number of potential foreclosures. The program is voluntary to lenders and is only available to homeowners whose mortgages were sold to Fannie and Freddie on or before May 31, 2009. They must be current on loan payments, have no late payments in the last six months and only one late in the last 12 months.

3. Doing away with and/or reducing some risk-based fees and closing costs.

In some cases, this will eliminate the need to pay for a home appraisal because the program will rely on automated appraisals.

More detailed information will become available after November 15th.

The administration hopes that by allowing borrowers to refinance under this new set of criteria, it will double the number of borrowers. That's great and all, but it will still be much less than the 5 million the program was created to serve.

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